Need loan to cover cash flow? Tell bank your long-term fix.

Byline: SCORE The Register-Guard

Question: I currently operate a small business. My cash flow has been falling, and it has become apparent that I will be in need of capital. Can you tell me what documentation I need to prepare in order to get a commercial business loan?

Answer: The most important issue for the lender is how your business will repay the loan, which ties directly to how you will solve your cash flow problem. Your documents will have to clearly demonstrate that turnaround prospect.

You may be able to side step the issue by offering equity in real estate or other collateral to secure the loan or to secure your personal guarantee of the loan. But assuming you cannot do that, the documents you take to the bank must make the case that your company will solve its problems and have little or no risk of loan default.

Documentation requirements may vary, and you should contact your lender for the exact information you must supply. Common requirements include: an updated business plan with cash flow and income and expense projections; an explanation of the purpose of the loan; a history of the business; the amount of investment by the owners; and the lease or ownership details for your business premises and all necessary business equipment. If you have accounts receivable or other assets you can offer as collateral, include details.

Existing businesses should include financial statements for the current and three prior years, a schedule of existing term debts and an aging schedule of accounts receivable and payable.

You typically will have to produce signed personal financial statements, three years of personal and business tax returns and the personal resumes for the business owners.

Ideally, your updated business plan will candidly address the causes of your deteriorating cash flow and show how you will successfully correct the problem. You might want to consult a SCORE counselor for an independent reaction to that part of your plan.

If the lender is unable to approve your loan, you should ask the lender to consider your request under the SBA loan guaranty program. Under this program, the SBA can generally guarantee up to 80 percent of a small business loan. However, the lender must agree to loan the money with the SBA guarantee.

The lender will then forward your loan application and a credit analysis to the nearest SBA District Office. After receiving all documentation, the SBA will analyze the entire application and make its decision.

Note that some banks are authorized to make the SBA loan funding decision in house and that would shorten the process. For more information on SBA guaranteed loans, visit sba.gov.

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ASK SCORE appears on the first and third Sundays of each month in the Business section of The Register-Guard. E-mail questions to [e-mail]. To schedule a free business counseling session with SCORE, call 541-465-6600.